Clarity on the applicability of goods and service tax (GST) on petroleum products may be absent but analysts say a dual tax regime for the oil and gas industry will make compliance difficult.

Products like kerosene, naphtha and LPG will be under the ambit of GST, while five items in the basket — crude oil, natural gas, aviation fuel, diesel and petrol — have been excluded during the initial years.

Abhishek Jain, tax partner, EY India, said the oil and gas industry would largely be negatively impacted by the introduction of GST. “Because of the peculiarity, this industry would be pained to comply with both the current tax regime as well as the GST regime,” he said.

While compliance is one reason, taking tax credit would be another issue. Besides, there would be non-creditable tax costs. Jain cited the example of a refinery producing diesel and petrol that would pay GST on the procurement of plant, machinery and services; GST would not be creditable against the out-excise duty and VAT levied on petrol and diesel.

“The said tax costs would have an inflationary impact on the overall economy,” he said.

Under the proposed GST regime and the current VAT structure, tax on inputs are deducted from the tax payable on the final product. Besides plant and machinery, crude oil and natural gas, which are processed to get various petroleum products, do not attract GST. For instance, LPG is produced both from natural gas and crude oil. While LPG would be part of GST, crude oil and natural gas would not be.

The constitutional amendment Bill cleared by the RajyaSabha is an enabling legislation. It is expected that clarity on what happens to the rates on petroleum products covered under the GST ambit will come only after the central GST Bill is passed by the Union government and after the states pass their respective GST Bills. The Constitutional Amendment Bill passed by the Upper House on Wednesday said petroleum” would be under the purview of GST. It is not clear which products are covered under the generic terms.